So you’ve heard that the S&P 500 price outlook indicates an upcoming bear market. You want to do something to protect your investment, but don’t know what. In this article I’ll go over some of the indicators you can use to spot a bear market and what you can do to ensure your financial security.
It’s relatively easy to spot a bear market because all you have to do is compare the direction of the trend line of the S&P with the direction of the trendline of the prior and previous five market cycles (the average length of a bear market). If the current trend line appears to have edged downward and the previous ones had consistently turned upward, then the price will likely continue to tumble.
What exactly does it mean when the price index of the S&P 500 gets lower during the bear market? Let’s take a look at four of the most important things you should be watching for.
First, if the trendline of the S&P gets lower and the previous one was stronger than it is today, then that means that the S&P 500 is likely to drop in the coming weeks. The index has usually either dropped sharply or steadily for several years before the bear market period. This should tell you that there’s a chance that the current price might fall even further than it is now.
Second, another sign that the index is heading for a low is when there are several bears that seem to have aligned themselves around a trendline that has lowered since the last cycle. For example, you’ll see several bulls that seem to have aligned around the trendline of the S&P when the index falls below two hundred and fifty points. This is usually a sign that there’s going to be a bear market. Third, the trendline of the S&P Index appears to have curved downward during several years and shows no signs of stopping this time. Usually, the previous cycle ended with the index at two hundred and fifty points. Since the price index has been trending downward, you can expect that it will continue to do so, which suggests that the prices of the stocks will be lower.
Fourth, the index recently fell sharply during the past three years and the future market prices for the stocks haven’t been any different from what they were before. After all, in the previous five market cycles, the S&P Index rose consistently and the future prices didn’t differ much from the past five cycles. Since the future market prices have been lower, then that would suggest that the future prices for the stocks won’t be any different.
Even though these four indicators can help you to spot a bear market and to take action to protect your portfolio, it’s also very important to understand the definition of a bear market and how it differs from a bull market. There’s a good explanation for this difference in this article.
In order to keep your money safe during a bear market, it’s best to invest only part of your portfolio in the index itself. Instead, concentrate on the small cap stocks and gold. Using your small cap stocks to protect the remaining portion of your portfolio from being wiped out in a bear market is a good way to avoid a wipe out in a bear market as well.
Most people think that they can just rely on the price of the index to tell them when to buy and sell. But this approach will usually backfire and cause the investors to lose more money than they can afford to lose.
To determine when the next bull market is about to occur, you need to understand how the index behaves during a bull market. It tends to follow a trend line, but that doesn’t mean it stays on a trend.
The reason this is so important is because of the nature of the stock market. A bull market often lasts longer than a bear market and can be just as volatile, if not more so, so that a bear market.